The U.S. dollar recorded a small uptick on Friday morning but struggled to build momentum as market participants prepared for the release of U.S. consumer price index data later in the day, a report expected to influence the Federal Reserve's rate trajectory.
At 03:00 ET (08:00 GMT), the Dollar Index - which measures the greenback against a basket of six major currencies - was up about 0.1% at 96.975. Despite the intraday rise, the index was on track to finish the week down roughly 0.6%.
CPI release takes center stage
All eyes in markets were on the upcoming January CPI figures. Traders are seeking clarification about how U.S. interest rates might evolve through the rest of the year, and inflation readings are central to that assessment. Consensus forecasts point to a modest easing in both headline and core CPI, but participants remained cautious about any hawkish surprises - particularly given a recent pattern of January inflation prints beating estimates.
Analysts at ING cautioned that today’s CPI report may not move markets as much as last Wednesday’s payrolls data did. "Today’s U.S. CPI report is likely to have a smaller market impact than Wednesday’s payrolls. The Federal Reserve has been signalling little urgency to cut again, and it’s mostly the jobs market that can move the needle," they said in a note.
Earlier in the week, stronger-than-expected nonfarm payrolls for January offered the dollar some support, but the currency remained under pressure amid rising uncertainty over U.S. monetary policy following the nomination of Kevin Warsh as the next Federal Reserve Chair. ING also noted the week’s price action suggested a tendency to sell dollar rallies, saying: "The price action of this week strongly suggests an inclination to sell the USD rallies, and we struggle to see the dollar recover substantially from here."
European currencies and growth data
In Europe, EUR/USD slipped about 0.1% to trade near 1.1858 as investors awaited the flash estimate for eurozone GDP in the fourth quarter. The preliminary reading is expected to show quarterly growth of 0.3%, translating into year-on-year growth of 1.3%.
Market attention will also be on scheduled remarks from European Central Bank Vice President Luis de Guindos. ING commented that recent public statements from ECB officials had not produced much dissent from the prevailing neutral stance. "The latest comments by other members have gone under the radar, with no clear dissenting opinions to the dominating neutral stance. Incidentally, there have been very few follow-up comments on the euro’s strength after the meeting. Overall, very few reasons to revise rate expectations, and this should remain the case for some time," the bank said.
GBP/USD traded marginally higher at about 1.3623. The pound had a difficult week, hampered by weak fourth-quarter growth data and renewed political turmoil in the United Kingdom, which constrained broader gains.
Asian FX moves
In Asian markets, USD/JPY rose roughly 0.5% to 153.45 in morning trade, even as the yen posted its strongest weekly performance since November 2024, with the pair down about 2.4% on the week. Yen strength followed a series of hawkish comments hinting at potential intervention from Japanese officials - remarks that helped the currency overcome concerns tied to elevated fiscal spending under Prime Minister Sanae Takaichi.
Elsewhere in the region, USD/CNY inched up around 0.1% to 6.9102, though it was trading about 0.4% lower on the week after several firm midpoint fixes by the People's Bank of China. The yuan remained close to a near three-year high reached earlier in the week, having retreated from its highest level since May 2023.
AUD/USD slipped about 0.3% to 0.7067 intraday, but the Australian dollar was still positioned for a weekly gain near 0.7% and was trading close to a three-year high. The currency’s resilience followed a string of hawkish remarks from the Reserve Bank of Australia and was supported by growing market expectations that the RBA may tighten policy further after a 25 basis point increase last week.
Market implications
With inflation data in focus, currency markets were largely range-bound ahead of the CPI release. Movements in the dollar and regional currencies reflected a mix of economic-data drivers, central bank commentary, and political developments. Traders remained alert for any upside surprises in the CPI that could shift rate expectations and alter the path of currency flows.
Given the prevailing uncertainty, investors and corporate treasuries monitoring exchange-rate exposure and interest-rate risk will likely keep positioning light until the inflation figures and commentary provide clearer signals about policy direction.